"Something will happen in Europe with Nasdaq in the next six months," a high-level Nasdaq official said Tuesday. "We've had investment bankers in Europe working on that question for the last three months. The numbers have been calculated and recalculated and we have a reasonable set of options we might pursue depending on how things unfold." One option open to Nasdaq is making an outright acquisition bid for the LSE, which is currently fending off a hostile bid by Sweden's OM Gruppen AB. But regardless of Nasdaq's desires, such a move could face significant obstacles, not least of which is the LSE's intention to remain independent.

Just last week, LSE Chairman Don Cruickshank highlighted in a speech the disadvantages of a merger with Nasdaq. As a result, Nasdaq likely would hesitate to make a hostile bid, but might consider that its chances of inking a friendly deal are higher than those of any other market, given its access to financial resources and its lack of commitment to any particular technology platform. Moreover, a deal with a US exchange might be more palatable to the British than a takeover by another European exchange.

Nasdaq officials said on Tuesday they have been talking with the LSE, Deutsche Boerse, Euronext and OM Gruppen about potential partnerships and combinations in recent months. Euronext was formed by the recent merger of the Paris, Brussels and Amsterdam exchanges. OM Gruppen, operator of the Stockholm stock exchange, said Monday that it had acceptances for its bid from shareholders representing only 2.73 per cent of share capital in the LSE, a sign that it is unlikely to succeed. The bid expires November 10.

Deals between exchanges are notoriously hard to consummate. Still, Nasdaq has long been interested in Europe and has approached exchanges about possible combinations in the past. In more recent visits to Europe, including last month, the market's pitches have been general and have lacked specific short-term and medium-term plans, according to someone familiar with their presentation.

But Nasdaq is developing the financial wherewithal for a bid. It is converting to a shareholder-owned governance structure from a member-owned structure. In June the National Association of Securities Dealers sold 40 per cent of Nasdaq on a fully diluted basis in the first phase of a private placement that raised $ 260 million for Nasdaq and $ 74 million for the NASD. The second phase is to be completed before year end and is to reduce NASD's ownership to less than one-third.

Tuesday, the high-level Nasdaq official said, "Next year there will be a thorough look at the possibility of an IPO," or initial public offering of stock in Nasdaq, although he said it could be difficult running a stock market while having to satisfy public shareholders. Cash from the private placement or stock from an IPO could both be used to finance acquisitions.

However, the LSE doesn't appear to be in a welcoming mood. Last week, Mr Cruickshank told a securities conference in London that the LSE's "future is not as a subsidiary of OM or ... of any other organization. The London Stock Exchange is not up for sale." Responding to speculation about a merger with Nasdaq, Mr Cruickshank warned that "a US tie-up or merger would raise another difficult issue," the probable demand by US authorities that their regulations govern the combined market. Alluding to both the New York Stock Exchange and Nasdaq, he added, "Both the obvious US candidates for a merger or deal have fuzzy governance, pose valuation problems and bring different market structures."

Despite those strong words, independence may be an increasingly costly path for London. Markets elsewhere in Europe continue to pursue consolidation, partly under pressure from major securities firms that are trying to reduce pan-European clearing and settlement costs. There are also private trading systems seeking to take away some of the LSE's share in trading British stocks, though the LSE is exploring trading continental blue chips itself.

An LSE spokesman had no comment. A Nasdaq bid could be welcomed by some United Kingdom brokerage firms, particularly smaller ones that have frequently mentioned the US market as a possible partner. Their customers, generally individual investors rather than professional money managers, are interested in trading US shares. But larger firms have been generally unimpressed with the idea and question the benefits of any link.

Nasdaq has been making a concerted effort to cast itself as a global stock market, but success has been mixed. Nasdaq Japan, a joint venture with Softbank Corp., says it has listed 30 companies since its June start, more than the competing "Mothers" market operated by the Tokyo Stock Exchange.

But a joint venture with the Stock Exchange of Hong Kong to trade Nasdaq stocks has seen little activity since starting four months ago. Nasdaq Europe, announced last year, is likely to be a distant competitor for listing growth companies to established European growth markets such as Deutsche Boerse's Neuer Markt.

(The Wall Street Journal)